Broadcom to buy VMware 'on Thursday for $60 billion'

Think we speak for everyone when we say: Seriously, what the f...?

Broadcom is to acquire VMware for $60 billion in a deal that will be announced on Thursday.

That's according to the Wall Street Journal. VMware is scheduled to report its Q1 2023 results on the same day, so the Thursday announcement theory is not entirely unrealistic.

Neither biz has had anything to say about the reported deal at the time of writing, with VMware declining comment on rumor and speculation.

Shareholders have expressed differing opinions about the proposed acquisition. Broadcom's share price fell three percent during Monday trading, while VMware's rose by almost 25 percent.

Until today's share price spike, VMware underperformed the NYSE index over the past six months. A $60 billion price tag, at $140 per share, would represent a premium on VMware's recent share price but would be around $4 billion short of VMware's theoretical value at the time it was spun out of Dell in November 2021.

The virtualization giant's FY 2022 results revealed seven percent annual revenue growth – the same figure achieved by Broadcom's software business in its past financial year – and a strong shift into subscription and SaaS sales.

But VMware arguably has more upside than the software portfolios Broadcom acquired with Symantec and CA technologies. Adoption of multi-cloud and edge are surging, creating a need for a consistent operating, network, and security overlay across multiple clouds and edge locations. VMware has few direct rivals as a provider of that overlay. The company's core compute virtualization business remains robust, even as containers and serverless applications become more common. 5G represents an enormous opportunity for the company.

At the time of its spinout from Dell, VMware said it would enjoy "increased freedom to execute its multi-cloud strategy, a simplified capital structure and governance model, and additional operational and financial flexibility." Those factors, execs said, would help VMware to accelerate.

If Broadcom were to buy VMware, it is unclear how those advantages would be preserved.

Perhaps Broadcom would run VMware as an independent business, just as EMC and Dell both did. That arrangement didn't stop VMware growing both revenue and influence – the company set technical agendas the entire storage industry adopted, and nudged the networking industry towards cloudier fare.

Maybe chip-design titan Broadcom could pull off the same trick. VMware has also shown it can partner closely with an owner without scaring away other close partners – Dell's ownership and inside access to VMware tech didn't stop the likes of HPE, IBM, and Lenovo continuing to do business with the virtualization giant. Broadcom could integrate VMware with its 5G, SmartNIC, and Arm-based processor businesses, and otherwise keep it credibly independent.

One more item to consider: VMware's closest direct rival Nutanix today saw a five percent jump in its share price. Make of that what you will. ®

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